Morningstar | Global Payments Maintains Its Growth in 4Q
Global Payments’ fourth-quarter results show the company maintaining its momentum. Growth remains solid, and margins continue to improve. We will maintain our $123 fair value estimate and narrow moat rating.Adjusted net revenue in the quarter was up 12% year over year, marking a modest deceleration from results earlier in the year but still quite healthy in an absolute sense. By region, North America was the strongest performer, with 14% growth. International results were held back by currency effects, but adjusting for this shows Europe and Asia-Pacific grew at similar rates to North America. Going forward, we continue to believe that Asia-Pacific can achieve stronger growth than the other regions and provide a bit of a boost to overall growth. We think that management’s diligence in building out foreign operations will pay dividends over time, as growth in electronic payments shifts to emerging markets. We appreciate management’s focus on international markets, and the company officially launched a joint venture with HSBC in Mexico in January.
Adjusted operating margins improved 80 basis points to 31.6% year over year, and management’s guidance is for 70 basis points of improvement in 2019. These levels of margin improvement are in line with our long-term expectations and support our view that the scalable nature of the business and the company's solid growth will allow for sustainable margin improvement over time.
During 2018, the company repurchased $208 million in shares and recently raised its authorization. Given management’s aggressive track record when it comes to M&A and its continued interest in acquisitions, we question whether the company would be better off working down debt absent any near-term M&A opportunities. Repurchase activity has been fairly modest, and debt/EBITDA is reasonable in our view at 4.1 times at year-end. However, we think improving financial flexibility would be a better option than returning capital at this point.
Global Payments is a pure play payment technology company providing payments and software solutions to merchants and financial institutions. The company has three segments: Merchant Solutions, which includes authorization services, chargeback resolution, and payment security services; Issuer Solutions, which provides solutions that enable financial institutions and other financial service providers to manage their card portfolios and reduces technical difficulty and overhead on a single platform; and Business and Consumer Solutions, which provides general purpose reloadable prepaid debit and payroll cards, demand deposit accounts and other financial service solutions through its Netspend? brand.
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